Defense Contractors To Congress: Stop Military Spending Cuts, Even If You Have To Raise Taxes

The very real possibility that defense programs will suffer deep,
across the board spending cuts early next year has major defense
contractors and their allies making an unusual plea to members of
Congress: Put everything on the table to avoid the so-called
sequester — including higher taxes.

That might not sound like an extraordinary ask. But it’s typical
for incumbent interests to leave all questions of ways and means
to Congress. And given the defense industry’s enormous power and
historic alignment with the GOP, it could have enough force to
finally break the GOP of its anti-tax absolutism.

A House Armed Services Committee hearing two weeks ago first
exposed the rift. Under questioning from Rep. Rob Andrews (D-NJ),
two major defense contractors acknowledged that the GOP’s refusal
to consider higher revenues was not conducive to solving the
looming budget crisis.

“I think everything’s gotta be on the table at this point, now,”
said a reluctant David Hess,
President of Pratt & Whitney — a subsidiary of United
Technologies. “This is a personal opinion. I’m not speaking
for the employees of United Technologies, or for UTC.”

“I know when we face challenges in our business — and i don’t
intend to imply that the challenge we face come close to the
magnitude of the challenges you face on this committee or the
Congress faces at large, it really makes ours look pale — we try
to put into the recipe every possible ingredient that might lend
itself to the formation not just of a solution but in a perfect
world a flexible array of solutions — comprehensive, integrated,
thorough — that allows us the flexibility to run the business,”
he said.

It took a year to reach this point, just five months out from the
fiscal cliff. But this was the theory of the defense sequester —
to force the GOP to recognize that a persistent refusal to ever
raise revenue won’t just threaten social programs beloved by
liberals, but the defense industrial complex they’ve nurtured for
decades.

Trade associations representing defense contractors agree.

“We’re not endorsing any particular bill out there or saying what
tax or entitlement should be changed,” said Alexis Allen,
spokeswoman for the Aerospace Industries Association, in a
Thursday phone interview. “We do think that everything should be
on the table at this point. We do need a solution. It’s really
quite urgent at this point and we think Congress needs to do what
it was elected to do.”

The National Association of Government Contractors shares this
view.

“Compromise will be necessary to avoid sequestration,” NAGC’s VP
for communications Simon Brody said in a statement to TPM.
“Considering whether to increase revenues or make funding cuts
will require careful consideration by legislators, but examining
all alternatives is certainly preferable to letting sweeping
automatic cuts take effect.”

That’s a real break with the prevailing GOP insistence that
higher taxes must not be part of any plan to avoid the sequester.
And it’s the rift Rep. Andrews was hoping to expose in his line
of questioning.

“I was very pleased with that answer,” Andrews told TPM in a
hallway interview Thursday. “I think the defense leaders have
been really public spirited and open-minded about this, and I
think they’re acting very responsibly and I trust and hope that
they will speak favorably about a balanced approach that includes
revenue and spending cuts that neither side wants but that will
avoid the sequester and reduce the deficit.”

Andrew’s said he’s had private discussions with other senior
defense executives who shared the same view, but declined to
provide further details.

“I do think you’re going to see a coalition of responsible people
emerge — unfortunately it’s going to be in the lame duck, not
prior — that’s going to support entitlement support that
Democrats don’t want, revenue increases that Republicans don’t
want, but deficit reduction that everybody wants, without
mindless, across the board cuts in programs.”

Early indications support that view. A group of Republicans led
by Sen. Lindsey Graham (R-SC) have proposed staving off or
eliminating the sequester with a package that could include
revenue from higher service fees and tax loophole closures, but
not from rate increases.

Graham’s leadership isn’t on board at the moment, but they sense
the danger.

“We’ve got to come to a resolution on the issue before the lame
duck,” said Sen. Jon Kyl
(R-AZ) — the minority whip and an ardent anti-tax Republican — at
a press conference in late July. “If we do not, the pressure to
make a deal in context of raising all the tax rates to prevent
the fiscal cliff Jan. 1 will be so great that I’m afraid defense
will wind up suffering or we’ll have to end up raising taxes to
an extent that harms the economy.”